Indexed universal life insurance products have an interesting combination of features. These policies are permanent and allow you to grow your life insurance funds through the stock market. As with any insurance product, there are benefits and drawbacks you should discuss with your advisor before purchasing a policy.
How does an indexed universal life insurance policy work?
As a permanent insurance policy, it won’t expire at the end of a term – it’s designed to last through your life. It also has a cash value that grows tax-deferred, and you can spend some of that money during your lifetime. Premium payments can be modified, though you need to meet a minimum amount to put enough money into the policy to keep it in force. What sets this policy type apart is its connection to the stock market.
The policy is linked to a market index (like the S&P 500). This means your cash value growth is based on stock market performance. When the market is up, you earn more money. If the market goes down, you won’t earn much, if anything. However, the policy can’t lose money. In the case of a down market, the policy simply won’t grow that year.
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An indexed universal life insurance policy blends insurance coverage and retirement investment planning into one product. It’s not a pure investment, but it be helpful for an investor looking to avoid risk, reap potential growth, and secure permanent insurance coverage.